Wanted to save tax? Have a look on deduction under section 80c

Written by:

Vibhor Agrawal- Founder

“FOX INVESTOR”- Financial Blogger

8^th of May 2020

It is very important to have information regarding deductions given in Income Tax Act so that we can invest and save tax. So here is some important deductions u/s 80c which gives you tax benefit.

Deductions allowed under the income tax act help you reduce your taxable income. You can avail the deductions only if you have made tax-saving investments or incurred eligible expenses. 

#SECTION 80C

You can claim a deduction of Rs 1.5 lakh your total income under Section 80C. In simple terms, deduction of whole of the amount paid or deposited in the previous year, being the aggregate of sum does not exceeds 1,50,000

Investment in Tax Saving FD / Tax Saving Mutual Fund / PPF / NPS / Sukanya Samriddhi Yojana / ULIP is considered as the best tax saving option. These funds are specially designed to give you dual benefit of saving taxes and getting higher returns on investment.

#TAX SAVING FD 

Tax-saving FDs are like regular fixed deposits but come with a lock-in period of 5 years and tax break under Section 80C on investments of up to Rs 1.5 lakh.

Eligibility: Subscribed by Resident Indian individuals.

Time Period: Lock-in period of 5 years.

Rate of Interest: FD interest rates are different from bank to bank from 5.5% to 7.75%

Investment Limit: Minimum investment limit is Rs 1000.

Tax Treatment: Interest earned is taxable.

 #PPF (PUBLIC PROVIDENT FUND) 

PPF are long term investments backed by government of India. Deposits made in a PPF account are eligible for tax deductions under Section 80C.

Eligibility: Subscribed by Resident Indian individuals, salaried and non-salaried individuals but a  HUF cannot open a PPF account.

Time Period: Lock-in period of 15 years, but can be further extended by 5 years. Partial withdrawals are allowed after 7 years.

Rate of Interest: Current interest rate is 8.0% p.a.

Investment Limit: Minimum and maximum investment limit is Rs 500 and Rs 1.5 lakh respectively.

Tax Treatment: Interest earned is tax-free.

 #EPF (EMPLOYEE PROVIDENT FUND)

EPF is a retirement benefit scheme that is available to all salaried employees. This amounts to 12% of basic salary + DA, that is deducted by an employer and deposited in the EPF or other recognized provident funds.

Eligibility: Subscribed by employee with basic salary more than 15,000 /month

Time Period: Can withdraw PF balance after 2 months of leaving job and does not take up employment within two months with an employer covered by PF Act.

Rate of Interest: Interest rate on the EPF is 8.55%.

Investment Limit: Both employer and employee have to contribute a minimum 12% of Basic Pay + D.A.

Tax Treatment: Entire PF balance (including interest) is tax-free, if withdrawn after continuous service of 5 years 

 #NPS (NATIONAL PENSION SCHEME)

The NPS is a pension scheme that has been started by the Indian Government to allow the unorganised sector and working professionals to have a pension after retirement. Investments of up to Rs 1.5 lakh can be used to avail tax deductions under Section 80CCD[1B]

Eligibility: Subscribed by every Indian citizen between the age of 18 and 60

Time Period: Partial withdrawals are allowed after 15 years but under special conditions.

Rate of Returns: Returns rate on the NPS varies between 12% – 14%

Investment Limit: No limit on maximum contribution but minimum is 6000/year

Tax Treatment: Employer contributions are tax-free.

 #NSC (NATIONAL SAVING CERTIFICATE) 

The NSC is a saving certificate that you can purchase from any post office

Eligibility: Subscribed by every Indian citizen between the age of 18 and 60 but not for HUF

Time Period: Partial withdrawals are allowed if nominee is dead otherwise after maturity

Lock in Period: 5 year to 10year

Rate of Returns: Returns rate on the NSC varies between 7% –8%

Bank accept NSC as security for secured loan

Tax Treatment: Employer Maturity amount is tax free but interest is taxable in the last year.

 #ULIP (UNIT LINKED INSURANCE PLAN) 

ULIPs are a mix of insurance and investment. A part of the invested amount in ULIPs is used to provide insurance and the rest of the amount is invested in the stock markets. Investments of up to Rs 1.5 lakh in ULIPs are eligible for tax breaks under Section 80C

Eligibility: An investor can buy ULIP for self or spouse or child

Time Period: Interest rate varies as it is market linked

Rate of Returns: Return rate on the ULIP varies between 12% – 14%

Investment Limit: No limit on maximum contribution

Tax Treatment: Investment and withdrawals & maturity amount are tax-free.

 #SUKANYA SAMRIDDHI YOJANA

 

Sukanya Samriddhi Yojana /Scheme is one of the most popular schemes by the Government of India. The scheme is aimed at the betterment of girl child in the country

Eligibility: Parents/guardians can open an account in the name of a girl child till she attains the age of 10 years.

Time Period: Up to 50% of the deposit amount can be prematurely withdrawn once the girl reaches the age of 18 years

Rate of Interest: Interest rate on Sukanya Samriddhi Yojana is 8% TO 9%

Investment Limit: Investment is limited to maximum Rs.1,50,000 in a financial year

Tax Treatment: Investment and withdrawals & maturity amount are tax-free

OTHER TAX BENEFIT OPTIONS

#HOME LOAN REPAYMENT

The repayment of the principal of a loan taken to buy or construct a residential property is eligible for tax deductions under Section 80C. This deduction is also applicable on stamp duty, registration fees and transfer expenses.

 

#CHILDREN’S TUTION FEES PAYMENT

The tuition fee paid for the education of two children is eligible for tax deduction under Section 80C of up to Rs 1.5 lakh. The fee can be paid to any school, college, university or educational institute situated in India. The fees have to be for a full-time course only.

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#LIC – LIFE INSURANCE PREMIUM

The annual premium paid for life insurance in the name of the taxpayer or the taxpayer’s wife and children is an eligible tax-saving payment under Section 80C. The deduction is valid only if the premium is less than 10% of the sum assured.

#ELSS- EQUITY LINK SAVING SCHEME

Lowest lock-in of 3 years and one more option to invest monthly. Interest earned are tax-free but if your interest exceed 100000 than 10% is chargeable under LTCG (Long Term Capital Gain). Higher Interest rates than Fixed Deposit and other investments but higher risk also because its totally depends on market.

CONCLUSION

So there are many deductions about which many of us were unaware and hence was not investing in those schemes. Now after  this information you are able to decide where to invest and save tax.